imported>Doug Williamson |
imported>Doug Williamson |
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| ''FX swaps.''
| | The worst yield that an investor could receive on a security, without there being a default by the issuer. |
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| The difference between the exchange rates applied to the near leg and the far leg of an FX swap. | | The calculation of the Yield to worst assumes 'worst case' outcomes - from the investor's perspective - for example in relation to the exercise of any options in favour of the issuer. |
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| For example the spot exchange rate is GBP 1 = 1.6000 - 1.6010 USD;
| | == See also == |
| | | * [[Yield to maturity]] |
| And the outright forward points are 5-8.
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| The <u>outright</u> forward exchange rate quote is GBP 1 = 1.6005 - 1.6018 USD.
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| The pricing of a related FX swap contract would be favourable for the price-taker (compared with two related outright contracts) for example as follows.
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| For a price-taker selling USD in the near leg and BUYING back a related amount of USD in the far leg.
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| The swap points would be +5 (because these are the points applying to calculate an outright forward BUYING rate for a client buying USD forward).
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| The swap points of +5 applied to calculate the differential between the near leg rate and the far leg rate would produce, for example:
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| NEAR LEG: Sale of USD at rate of USD 1.6000 per 1 GBP.
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| FAR LEG: Buying USD at a rate of USD 1.6005 per 1 GBP.
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| The selling rate of USD 1.6000 in the Near leg is better for the price taker, compared with the outright spot selling rate of USD 1.6010 per 1 GBP. (The price taker pays away fewer USD in the near leg, per 1 GBP received.)
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| 2.
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| For a price-taker buying USD in the near leg and SELLING back a related amount of USD in the far leg.
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| The swap points would be +8 (because these are the points applying to calculate an outright forward SELLING rate for a client selling USD forward).
| | [[Category:Financial_products_and_markets]] |
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| The swap points of +8 applied to calculate the differential between the near leg rate and the far leg rate would produce, for example:
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| NEAR LEG: Buying USD at rate of USD 1.6010 per 1 GBP.
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| FAR LEG: Selling USD at a rate of USD 1.6018 per 1 GBP.
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| The buying rate of USD 1.6010 in the Near leg is better for the price taker, compared with the outright spot buying rate of USD 1.6000 per 1 GBP. (The price taker RECEIVES more USD in the near leg, per GBP 1 paid away.)
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| == See also ==
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| * [[Far leg]]
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| * [[Forward points]]
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| * [[FX swap]]
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| * [[Near leg]]
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| * [[Swap rate]]
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The worst yield that an investor could receive on a security, without there being a default by the issuer.
The calculation of the Yield to worst assumes 'worst case' outcomes - from the investor's perspective - for example in relation to the exercise of any options in favour of the issuer.
See also
